Over at The Economist Greg Ip has an excellent column on uncertainty. Read the whole thing. Just to remind people, I think our economic woes are multifactorial. Low demand, risk aversion, uncertainty, deadweight loss, and any number of other factors all play a part. I also think it’s fatuous to pick one factor, particularly one that nobody knows what to do about, and fixate on it while ignoring all of the others. Dealing with each of them will have some incremental benefit.
There’s one specific thing in Mr. Ip’s column that I want to comment on:
Both sides of the debate erroneously seek support in the macroeconomic data. Gary Burtless of Brookings tells Mark Thoma that the highest profit margins and lowest corporate taxes (as shares of GDP) in 60 years are not consistent with the argument that regulatory uncertainty is an undue burden: firms should clearly be hiring and investing now to make money before those feared rules become reality. I’m not sure I agree with this logic. Today’s profits reflect returns on yesterday’s investments. Regulations and taxes affect the perceived return on tomorrow’s investments. One could equally argue that businesses’ failure to invest despite such high profits show they are demanding new investment meet a much higher expected return rate because of regulatory uncertainty. Conservatives, in fact, make just that argument. But that, too, is faulty. Corporate balance sheets are flush with cash in countries such as Britain that do not share America’s more activist approach to regulation. The simpler explanation for the hesitancy to invest in all countries is the pervasive weakness of overall economic growth.
The problem with this analysis is that the companies that are sitting on wads of cash and the companies that hire belong to two completely different categories of companies that don’t overlap a great deal. Large established companies may well be holding cash at historic levels; they’re not the ones who create jobs. Over the last several decades those companies have shed, literally, millions of jobs. New companies create jobs and they aren’t sitting on a lot of cash.
With the crazy IPO numbers from Linked In etc. I’m wondering why there’s not another high tech start-up boom. Obamacare is moot because benefits for these companies always include family health plans and it includes tax breaks for small biz (I guess that only matters if they’re refundable credits when they’re not making any money at first).
The ACA should reduce health care costs for small businesses (those with less than 50 employees).
Why arent big businesses hiring back the people they laid off? I agree that this is, like most disasters, multifactorial.
Steve
Yeah, like the stimulus bill should have kept the unemployment rate around 7%? Like how TARP should have kept our financial system in good shape? Like how Frank-n-Dodd should keep future financial crises from getting out of hand?
Woulda shoulda coulda.